Orange and BT Wholesale together in a new deal

Mark Main, Jonathan Coham, Fernanda Mello Veiga
26 Sep 2007
00:00

BT Wholesale and Orange yesterday announced an agreement under which BT Wholesale will provide wholesale fixed-line services to Orange retail customers. This announcement follows Orange's new pricing plans launched last week that offers Broadband Max and Home Starter at £24 and £12 respectively.

Orange will be providing these services under its own brand, which are managed and maintained by BT Wholesale. HomeMax's broadband speed is up to 8mbps and the contract length is 18 months.

Overall, we think it is a good strategy for Orange to offer fixed services, increasing its portfolio of services. In addition, this move enables Orange to offer line rental across the UK (as opposed to solely unbundled areas), an approach already taken by Carphone Warehouse (CPW) and others.

From a price point-of-view, Orange has been clever. The price of both packages clearly undercuts BT's closest package (BT Together Option 2 + broadband), and offers a good incentive for customers to take the premium package. Customers can pay a mere £1 to upgrade from Home Starter (which additionally requires BT line rental) to Broadband Max. This adds unlimited, faster broadband for a minimal fee, but nicely cuts BT Retail out of the voice revenue stream.

However, Orange is pushing single billing, instead of two, as the new service's competitive advantage. We agree that customers will appreciate a single bill. But the contract length is a lot longer than the 12 months other providers are offering. We are unsure that receiving a single bill at the end of the month justifies being tied into one provider for so long. Customers should be given an option to choose between 12 and 18-month contracts.

In effect, we see this move is as an "anti-BT Retail" strategy. Orange will continue to struggle in the unbundled/cabled areas due to the highly aggressive strategies of BSkyB, CPW and Virgin Media. However, we believe this is a sound and more importantly, a necessary move if Orange is to control falling broadband market share in the short-term, and go some way to securing a place in the UK telco market long term.

In the longer-term, Orange must think carefully about its positioning. Relatively speaking, Orange's new pricing offering is competitive, but it takes more than that to grow, and even survive in an increasingly saturated market. In France, Orange stands for customer service, ubiquitous availability and high-grade services. Orange in the UK has recently gained a reputation for poor customer service from various surveys, and has confused customers about what services it offers (largely due to the Orange re-branding).

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